Determining your target price for your product or service, sounds simple enough, right?

But if you don’t take all the key factors into consideration, it could backfire, costing you time, customers, and revenue.

Product pricing needs to take into account customer expectations, market trends for your industry, and production costs where applicable.

The end goal? Maximized profits and competitive pricing.

Your mission, should you choose to accept it, is finding the perfect balance between value and profit to determine your optimal price points and fatten those profit margins.

The role of product pricing in business success

When you set out to purchase a product or service, what first comes to mind when you see the initial price?

You’re likely asking yourself, what’s the value? What do other customers say about it (perceived value)? Is it comparable with similar products in the market? What’s the competitor pricing?

Your customers are asking themselves the same thing. They may be doing market research to understand the value-based pricing.

On the business end of the deal, start by asking yourself these questions:

• Market: Are your prices competitive with the market? Being too high or too low will give the wrong impression.
• Competitors: What are they offering for the same price range? How is their reputation?
• Customers: What are your customers expecting from purchasing your product or service, and can you deliver?
  

Asking and answering these questions is a great place to start in refining your pricing strategy approach, as there are different pricing strategies and the one you choose will depend on your customer needs among other factors before you set the final price.

Alright business owners, you ready? Let’s dig into 4 ways to maximize your profits and start setting prices and see those desired profit margins sooner than later.

1. Automating complex product pricing with CPQ

Complex, dynamic pricing models can be pain to maintain. If your business offers a wide range of products and services, keeping up with flexible product pricing could be tricky.

But, it doesn’t have to be difficult to determine your selling price.

If you need to factor in things like market share, fixed costs, tiered pricing, bulk pricing discounts, region-specific pricing, and more, it takes a lot of effort to keep things simple, consistent, and accurate.

The good news: CPQ (Configure, Price, Quote) is a tool that many businesses with the above needs use to tackle their pricing strategy with confidence and precision.

CPQ can handle even the most complex pricing models, allowing your sales team to be aligned and spend more time closing deals with confidence you have the right price for your target customers.

Our client Kiss Print Solutions saw an impressive uptick in their close rate of 20% after implementing PandaDoc as a part of their business’s tools in additio to an 85% productivity improvement.

We talk a lot about saving time, so we’ll put our money where our mouth is and get right to the point: you can save valuable time and revenue with PandaDoc, give it a free 14-day trial to see for yourself.

2. Real-time pricing updates

Pricing isn’t always about the markets, it’s also about keeping in up-to-date and consistent internally as they fluctuate.

Real-world factors like supply chain issues, supply and market demand, market conditions, overhead cost, markup, and more can trigger a necessary product price adjustment.

CPQ can help you with real-time adjustments, ensuring accuracy and communicating consistency across teams. That way you can focus on price adjustments without the added risk for human-error and wasted time.

CPQ helps your brand stay current so your customer base and new customers alike can see up-to-date and current prices as they change.

3. Ensuring pricing consistency across channels

Have you ever looking at a product or service, perhaps comparing price offerings (also known as price skimming) through different channels, and seen an inconsistency?

Different pricing information at different places? One site offers a lower price, while maybe a sales rep offers a higher price.

That’s not a good look. It can lead to distrust among your existing and potential customers. Especially if people are receiving different quotes from different sales reps. Yikes, talk about a bad reputation.

Here’s how to avoid it: When you have a standardized pricing structure, you can rest easy that your customer’s trust in you is well-placed, and well-maintained.

Customers need to know that regardless of purchasing in person, online, or over the phone, they’ll receive the same information and total cost in relation to the value of your product.

Bonus: If you use a CRM system, CPQ can hook to it and tap into your customer data for customized quotes through preset pricing rules.

4. Data-driven product pricing decisions

Set-it-and-forget-it? Nah, don’t do that. Pricing is an ever-evolving number with variable costs and a shifting target market.

Insights into your product pricing and how it’s impacting your bottom line is vital for any and all future adjustments.

What’s our favorite four-letter word? Say it once, say it a thousand times: data, data, data.

The cool thing about CPQ is it harnesses all the data for you, making it quick and easy to access what you need, when you need it. This is a great benefit for product pricing.

Example: Say you ran a sale. You’re not sure if it helped, or actually lost you money.

Maybe you see that the sale is underperforming, or something separate like a bundle discount deal is doing much better than you anticipated.

Having access to these insights helps your sales team stay nimble and make adjustments when, and where, needed.

Pricing analysis

To find the best prices, pricing analysis examines market trends, what rivals charge, and what customers are willing to pay.

This process aims to find the sweet spot between profit and market standing by analyzing costs, customer perception, and how much demand changes with price.

Tools like competitive benchmarking, customer feedback, and data analytics are commonly used to refine decisions.

Pricing analysis helps companies stay competitive by ensuring healthy margins.

A well-done analysis can pinpoint areas for premium pricing or suggest necessary price adjustments to reflect market demands.

Cost, margin, and markup in pricing

Setting sustainable prices requires understanding cost, margin, and markup. The cost of a product represents the total expenditure for materials, labor, and overhead required for its production or acquisition.

Margin is the profit remaining from a sale, calculated as a percentage of the selling price, after paying for all costs associated with the sale.

On the contrary, markup is the percentage increase on the cost used to determine the selling price.

Correctly assessing these elements guarantees financial health and competitive prices, mitigating the risks of undervaluation or overpricing.

Types of pricing strategies

Different pricing tactics are used by businesses depending on factors like their objectives, industry, and target customers. A frequent approach is penetration pricing, where low prices entice customers;

Unlike cost-plus pricing, which adds a fixed percentage to production costs, value-based pricing considers the perceived value for customers.

Choosing the right strategy involves understanding customer behavior, market dynamics, and long-term objectives.

Pricing strategy examples

Real-world examples demonstrate how effective pricing strategies can be in specific contexts.

Brand value is reinforced through premium pricing by tech companies like Apple, while discount retailers like Walmart use competitive pricing to appeal to consumers who prioritize low prices.

Tiered pricing, common in subscription services like Netflix, allows them to serve different customer segments.

These examples highlight how custom strategies can succeed in various areas, including market penetration and brand differentiation.

Pricing models

Fixed, dynamic, subscription, and freemium models are just some of the structured approaches to pricing that pricing models provide.

Retail goods benefit from fixed pricing for consistency, while dynamic pricing adjusts based on demand or seasonality, commonly found in hospitality and travel.

Software and media industries rely on subscription models to generate consistent revenue.

Freemium models use free offerings to draw in users and then upsell premium services. Product, customer expectations, and business objectives all factor into model selection.

Selecting a model depends on the product, customer expectations, and business objectives.

How to create a pricing strategy

To build an effective pricing strategy, several steps are necessary to match prices with both business objectives and market trends.

Start your efforts with market research to gain insights into demand, competition, and customer value perception.

Determine your pricing model and strategy based on your brand and objectives, starting with a cost analysis to create a foundation.

Observe how pricing performs in the real world and modify it based on user feedback and performance data. Having a clear, adaptable strategy leads to both profitability and customer satisfaction.

Product pricing and beyond

A solid product pricing strategy is only one (albeit very important) piece of the much bigger puzzle.

CPQ can help you stay ahead of the curve, and cut down on time and stress when things shift.

Increased sales volume is the true testament of knowing you hit the right pricing method.

Disclaimer

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